Future of SMEs in Pharma Insight 2011

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he Indian pharmaceutical industry has middle class population that has gained accessbeen acknowledged for its wide-ranging to better quality medical care owing to its ever-

Tcapabilit ies with regard to drug increasing purchasing power and the majority

manufacture and the application of latest population comprising the rural populace andtechnologies. Over the years, the industry has people with low economic prosperity, thequalified itself to be amongst the top science- pharmaceutical industry over the last few yearsbased industries of the nation, contributing has been forced to evolve itself to meet thesubstantially to the export growth of the nation. changing demands. Population growth coupledOn its own initiative and with the support it has with a rise in per capita income and increasingderived from various government agencies, the health awareness are factors that will continueIndian pharma industry is today both admired to dr ive the domest ic demand forand feared by global competitors. pharmaceutical products. The economic survey

20052006 predicts that India's population will

The Indian pharmaceutical industry helps meet reach around 1.4 billion by 2026. Theup to around 70%75% of the country's percentage of the population in the age group ofpharmaceutical needs. The growth of this 1565 years in 2026 is expected to be aroundindustry in the last couple of decades is one of 68% as compared to around 60% currently.the main reasons for the availability of While the pharma market is still competitivereasonable-quality, affordable medicines in the and dominated by low price, the newly evolvingmarket. Consisting of around 250 large units quality standards in the healthcare industryand approximately 8000 small- and medium- have brought in new challenges to thescale units, the pharmaceutical industry pharmaceutical industry.provides employment to both skilled and semi-skilled labour. The Indian pharmaceutical industry is passing

through a transformation period, and only whenIn a country with a population in excess of one the players organize themselves will they bebillion, balancing its act between a growing able to avail of the immense opportunities that

Future of Small and Medium Enterprises in Pharma

K. Chandrasekaran

With increasing patent expiries and availability of quality generic products, the pharma SME segment hasbeen the subject of increased focus and is rightly viewed as an agent of economic growth. This article

features the challenges ahead of pharma SMEs and the way forward for them as it is time for SMEs toconsolidate among themselves for better manufacturing and marketing capabilities

Vol. 9 Issue 1 Apr-Jun 2011

INSIGHTS FOR BUSINESS RESEARCHKnowledge +

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have been thrown open, both in the domestic policies and is considering the necessaryand global markets. changes required to make SMEs more proactive

to help achieve greater economic goals. TheThe Role of SMEs Planning Commission is also of the opinion that

In India, Small and Medium Enterprises the existing policies need whetting to enable(SMEs) are classified as per the Micro, Small SMEs to play a more dominant and proactiveand Medium Enterprises Development Act, role in the growth of the national economy. It is2006. Enterprises are classified into micro now well accepted that a vibrant SME sector isunits, small units, medium units, or large units the future, and hence, the government ison the basis of the investment made in plant and contemplating support in all possible ways tomachinery. The bases of comparison in other sustain the growth momentum.markets are different. In the European Union,for example, classification of enterprises as Pharma SMEsSMEs depends on parameters such as With an increasing number of products gettingemployment, assets, and business turnover. off-patent in the coming years and with the

growing awareness of the usefulness of qualityWith the practice of defining SMEs under generic products in some developed anddifferent and multiple criteria, many times the developing countries, Indian pharmaceuticalrole played by the SME sector in a developed or SMEs, which are currently focused on thedeveloping economy does not get sufficient generic business, stand to gain significantly.importance. The key indicators that define the Indian pharmaceutical SMEs have achievedeconomic prosperity of any developing or low price and high quality the two criticaldeveloped nation, such as poverty alleviation, factors for the success of any industry byever-increasing employment opportunities, and complying with Good Manufacturing Practicesavailability of various items of daily use to (GMP). Both the World Health Organization

name a few, are more often than not provided by and the United States Food and Drugthe SMEs. This has resulted in the big Administration have granted approvals to manyenterprises being kept on their toes by an of the Indian pharmaceutical SMEs, which hasintensely competitive SME sector that is enabled them to export generic products acrosscustomer friendly on both the quality and price the globe. Since the global generic business isfronts. SMEs can attribute their competitive expected to show a growth of 20% annually,edge to their ability to take fast decisions, which many large MNCs are looking at utilizing thisin turn is a result of factors such as low staff feature of Indian Pharma SMEs to hold on tostrength, direct control of the entrepreneur in their business share.business process and progress, availability of Indian SMEs enjoy cost-effective productionraw materials in the vicinity and at the door step, capabilities, and when this is backed up by

and the ability to manufacture innovative improved scientific technology and favorableproducts that cater to the needs of specific regulatory environments, they will be wellregions. Owing to the success of SMEs, an placed to tap the growing generic businessincreasing number of youngsters are looking at opportunities.becoming entrepreneurs, which has resulted ina spurt of employment opportunities in smaller Challenges ahead for pharma SMEstowns and cities, thereby reducing the pressure The applicability of excise duty on the basis ofon Metros. maximum retail price (MRP) as opposed to the

ex-factory price put a damper on the growthRealizing the importance of SMEs, the central possibilities of pharma SMEs. Owing to this,

government has plans to implement a national large companies decided to cut back onstrategy for manufacturing, drawn up by the outsourcing, and all these businesses wereNational Manufacturing Competitiveness shifted to tax-free states like Himachal Pradesh,Council (NMCC). This positive step will help Ja mmu & Ka sh mir , Jh ar kha nd , andSMEs achieve higher levels of competitiveness Uttaranchal. This has resulted in a spurt of newand efficiency in their operations. In addition to manufacturing ventures in these states beingt h e P h a r m a s e c t o r, c h e m i c a l s & created in a hurry, resulting in non-uniformitypetrochemicals, IT hardware, and electronics of application of quality measures. Thisare some of the areas that will benefit by this resulted in the government formulating theinitiative. revised schedule M of the Good ManufacturingSMEs have emerged as a vibrant tier of the Practices (GMP) with effect from July 1, 2005.

economy as they have already taken over as key While this move was intended to benefitcontributors to the country's GDP. The Planning consumers and improve the image of the SMECommission is looking into the existing sector, many enterprises found it difficult to



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bring in the necessary finances to upgrade their competitiveness. To overcome this challenge,manufacturing facilities. This resulted in the following measures can be considered:closure of many SME units in all the four tax- 1. Pooling of resources in terms of spending onfree states. In the other states, while compliance R&D. Since research is a high-cost area, many

with the new GMP norms did take place, the small and medium enterprises can comerevised excise duty norms of application on the together to form small to medium groups andbasis of MRP affected the sustainability of the seek governmental support. This is an initiativeSMEs. Enough representation has been done to worth evaluating.the powers that be, and the SME sectors arewaiting hopefully for some positive outcomes. 2. Self-marketing: This is one area where

SMEs are found wanting as a group. Dr. SmartaThe other major development that has had an op in es , W ha t we re qu ir e is a 3Cimpact on the growth and viability of pharma frameworkCapital to facilitate access toSMEs in the recent past has been the spate of financing; Connection to enhance markettakeovers of domestic pharma firms by MNCs. ac ce ss by co nn ec ti on s; an d fi na ll y,

The approximately 6000 remaining SME units Competency to develop branding. We havein India fear that they will lose their growth done trading and selling, but we have lost focusopportunities and that their current share of on marketing and branding, so we need to40% in exports will be affected by these market SMEs. SMEs have tried to developdevelopments. The SME Pharma Industries themselves in isolation, but they lack direction,Confederation (SPIC) has been spearheading and hence they lag. (Image building of thethe efforts in representation of this matter to the pharma SME sector panel discussion hostedvarious governmental bodies. They have been by Confederation of Indian Industry (CII)'s Lifepointing out the possibility of drug prices being Sciences Sector and Express Pharma)increased by the MNCs to recover the cost of

acquisitions. 3. Govt Support: Support from the governmenttowards ensuring that SMEs, which are theThe way forward drivers of the growth of the rural economy, havePharma SMEs are here to stay and will play a a sustainable business model.very dominant role in meeting the needs of theever-expanding drugs requirement in the To conclude, Pharma SMEs in India can ensuredomestic market. However, it is in the area of a good future if they are willing to acceptexports that they are likely to face intense change and adopt a collaborative approach withpressure in terms of meeting the upgraded both the government and the other majorquality requirements while retaining their price industry players.

Mr. K. Chandrasekharan is an expert in field management, marketing and corporate Training. He is a seniorconsultant at Interlink and works for assignments on giving business support for budding pharma and Bio-

Pharmaceutical companies across India especially in the areas of operational restructuring and field forceeffectiveness.



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Future of SMEs in Pharma Insight 2011

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